BASIN Field Manual
Natural Capital Investments
  • Provenance
    • 📕The BASIN Field Manual
    • The Intrinsic Value of Nature
    • What You Seek
  • Core Benefits
    • âš¡Nature's Core Benefits
    • Core Benefits Framework
      • STOCKS: Ecosystems
        • Ecosystem Definitions
      • FLOWS: Core Benefits
        • Core Benefits Definitions
  • RealValue
    • âš¡Why put a Value on Nature?
    • The RealValue of Natural Capital
      • Examples of RealValue
      • Ecological Polygon
      • RealValues
        • STOCKS Values
        • FLOWS Values
      • Natural Cap Rate
      • RealValue Use Cases
  • Ensurance
    • âš¡Critical Infrastructure
    • Ecological Ensurance
    • Ensurance Examples
    • 📓ENSURANCE BINDER
  • Protocol
    • âš¡The Value Gap
    • Nature's Balance Sheet
    • The BASIN Protocol
      • PLACE
      • PURPOSE
      • PEOPLE
    • Model
    • Incentives
      • CO2 PPM - Keeling Curve
    • Contracts
      • .BASIN
      • STREAMS
      • FLOW
        • Lifestyle & Fashion
  • Dossier
    • FAQ
    • Manifesto
    • Soundtrack
    • Contact
    • CONFLUENCE
    • DISPATCHES
    • BINDER
    • Other Projects
      • RWA x ReFi Report
      • Core Benefits Label
    • Formalities
      • License
      • Authors
      • Disclaimer
      • Privacy
  • Appendix
    • Glossary
    • Land Cover Classification & Ecosystem Typologies
      • Ecosystem Classification Frameworks
        • IUCN Global Ecosystem Typology 2.0 (IUCN GET 2.0)
        • Ecosystem Services Valuation Database (ESVD)
        • FEMA Ecosystem Service Value Updates
        • IUCN Red List Habitat Classification
        • ESRI Land Cover
        • USGS National Land Cover Database (NLCD)
        • Dynamic World
        • Other Sources
      • Ecosystem Types
        • Cultivated & Developed
        • Rivers & Lakes
        • Inland Wetlands
        • Urban Green Open Space
        • Rural Green Open Space
        • Forests
        • Coastal Systems
        • Grasslands
        • Shrublands
        • Polar & Alpine
        • Desert
        • Subterranean
    • Ecosystem Services Classification
      • Ecosystem Services Frameworks
        • System of Environmental-Economic Accounting - Ecosystem Accounting (SEEA EA)
        • Common International Classification of Ecosystem Services(CICES) V5.1
        • Ecosystem Services Valuation Database (ESVD)
        • FEMA Ecosystem Service Value Updates
        • IPBES Global Assessment of Biodiversity and Ecosystem Services (NCP)
        • Exploring Natural Capital Opportunities, Risks and Exposure (ENCORE)
        • TNFD Environmental Assets & Ecosystem Services
        • Integrated Valuation of Ecosystem Services and Tradeoffs (InVEST)
        • Swiss Re Biodiversity and Ecosystem Services Index (BES)
      • Ecosystem Services Classification
        • Raw Materials
        • Food
        • Energy
        • Water Security (supply & storage)
        • Soil
        • Medicinal & Genetic
        • Climate Regulation
        • Air Quality
        • Water Quality (filtration)
        • Hazard Risk Reduction
        • Pollination
        • Erosion Control
        • Biological Control
        • Habitat
        • Recreation & Tourism
        • Research & Education
        • Aesthetic
        • Cultural & Spiritual
        • Existence
    • Real Asset Classification & Real Property Considerations
    • Value Types & Valuation Methods
      • Types of Value
        • Values Across Cultures
      • Valuation Methods
    • Selected Value Types & Valuation Methods
      • Fundamentals of RealValue
      • Real Asset Values
        • Cap Rate Overview
      • Ecosystem Service Values
    • Ecological Indicators & Metrics
    • Ecosystem Services Dependencies & Risks
      • Industry Classifications
      • Industry Dependencies & Risks
      • By Sector & Industry
        • Consumer Staples
        • Utilities
        • Real Estate
        • Industrials
        • Materials
        • Energy
        • Consumer Discretionary
        • Financials
        • Information Technology
        • Communication Services
        • Health Care
        • Archive
          • Outdoor Apparel & Gear Industry
          • Food & Beverage
            • Tobacco
Powered by GitBook
On this page
  • Why we are NOT using DCF and NPV
  • Time Sensitivity
  • Accuracy and Manipulation Risks
  • Focus on Immediate RealValue
  • Complexity and Real-world Applicability

Was this helpful?

  1. Appendix

Selected Value Types & Valuation Methods

PreviousValuation MethodsNextFundamentals of RealValue

Last updated 10 months ago

Was this helpful?

For the purposes of our work of expressing the we narrowed down the value types and valuation methods applicable to establishing the the higher and better use of real assets and valuation of Nature's Core Benefits. Before we dive into the our selected types and methods we must clarify:

Why we are NOT using DCF and NPV

Several frameworks, particularly those in financial and economic disciplines, rely heavily on Discounted Cash Flows (DCF) Analysis or Net Present Value (NPV) Comparison for valuation. However, these methodologies are not suitable for calculating RealValue for several reasons.

Time Sensitivity

Our approach focuses on capturing the RealValue at a specific point in time. This is critical for understanding both the current ecosystem function and condition, as well as assessing actionable interventions. DCF and NPV, in contrast, lean on projections extending over multiple periods, such as 5, 10, or even 20 years. The longer the time horizon, the more susceptible these models are to errors and market volatility.

Accuracy and Manipulation Risks

DCF and NPV not only depend on forecasts, but they can also be sensitive to various assumptions, including discount rates. This leaves substantial room for error or even manipulation. With varying discount rates and projected cash flows, one can easily tailor DCF and NPV calculations to produce a value that aligns more with what is desired rather than what is accurate.

Focus on Immediate RealValue

Our RealValue Natural Capitalization Rate formula, which combines Net Operating Income (NOI) with Ecosystem Service Value (ESV), divided by the Real Asset Value, aims to provide a more immediate and tangible measure of value. This approach allows us to define specific interventions based on current ecosystem condition and the affects on value. After implementing these interventions, we can then re-measure RealValue to assess the actual impact on ecosystem functionality and asset value.

Complexity and Real-world Applicability

While DCF and NPV can be highly complex and demand a series of speculative assumptions, RealValue aims for simplicity and real-world applicability. The DCF model may involve complex calculations that require assumptions about future market conditions, cash flows, and discount rates. NPV, meanwhile, focuses strictly on financial returns and often neglects non-financial variables such as environmental impact, social values, and other intangibles that are increasingly important in today's investment landscape.

By avoiding the pitfalls associated with DCF and NPV, we believe the RealValue methodology offers a more accurate, actionable, and immediate understanding of an asset's worth and its impact on ecosystem function and condition.

RealValue of Natural Capital